Exxon, Upwardly Mobile

02/08/2011 12:59 pm EST


Jocelynn Drake

Financial Analyst, Schaeffer's Investment Research

This supertanker of a stock is steaming north to the chagrin of bearish options players, writes Jocelynn Drake of Schaeffer’s Investment Research.

Strong oil prices have proven to be a boon for oil giant Exxon Mobil (NYSE: XOM). The company's recent earnings report saw net income jump 53% in the fourth quarter. Furthermore, investors are also being rewarded with dividend growth and share buybacks.

Analysts seemed pleased with the latest report. Faisel Khan of Citigroup Global Markets, wrote in a research note, "We suspected Exxon could beat our number given strong demand for natural gas in Europe and strong international refining margins; however, the magnitude of the beat was much greater than expected."

Contrarian Takeaway

Despite the optimism on evidence in a recent Barron's article (“Exxon Energized,” Jan. 31), options players seem to be quite skeptical of the shares. The International Securities Exchange (ISE) ten-day put/call volume ratio for XOM comes in at 1.16, which is higher than 92.4% of all those taken during the past year. Meanwhile, the Schaeffer's put/call open interest ratio (SOIR) for XOM comes in at 1.44, at an annual bearish peak.

Wall Street also appears to be giving Exxon the cold shoulder. According to Zacks, the stock has earned seven "Buy" ratings and 12 "Holds." Any upgrades from this group could add some lift to the shares.

Technically speaking, the equity has soared nearly 15% since the beginning of 2011, rallying along the support of its ten-week moving average. The stock has not closed a session below this trendline since late August. An unwinding of this pessimism in the face of the stock's technical strength could pressure the security higher.

[And if not, investors can always fall back on the 2.1% yield and the company’s plans to spend $5 billion on share buybacks in the current quarter. Mark Skousen recommends two lesser known but much higher yielding energy plays. Tom Aspray notes that oil stocks have raced ahead even as the price of crude has sagged of late—Editor.]

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